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Vikki Rogers on UNCITRAL’s Working Group III on Online Dispute Resolution

by Jill Gross
July 2012

ADR Prof Blog by Andrea Schneider, Michael Moffitt, Sarah Cole,Art Hinshaw, Jill Gross and Cynthia Alkon.

Jill Gross

I am pleased to publish this guest post from Vikki Rogers, Director of the Pace Institute of International Commercial Law and Adjunct Professor of Law at Pace Law School and Fordham Law School:

Are We Meeting the Needs of Merchants and Consumers Looking to Buy and Sell Cross-Border? Thoughts on UNCITRAL’s Working Group III on Online Dispute Resolution

The United Nations Commission on International Trade Law (UNCITRAL) Working Group III (WG) just concluded its fourth meeting at the end of May. The Working Group is looking to establish an online dispute resolution (ODR) framework to resolve low-value cross-border e-commerce disputes. It is the hope that an ODR framework would create a new level of legal protection to encourage consumers and businesses to broaden their purchasing options (or expand their markets as sellers) beyond their national boundaries. In other words, as a U.S. consumer or vendor, I would know that if I purchase mosaic tile dinnerware directly from an online vendor in Spain and the plates arrived chipped, I wouldn’t be left with the unrealistic option of flying to Spain and filing a claim in the local court to get my money back – I could use the ODR system. Americans might think immediately of the credit card chargeback system or the Paypal ODR system to find similar relief. Indeed, these are both effective models and the work at UNCITRAL could be thought of to fill a similar function in the cross-border context for all payment types. However, with that said, looking at the progress of the Working Group meeting, there seems to be a gap between intent and execution. As such, I am among a group of observers left wondering whether the original objectives will truly be achieved at the end of this endeavor.

The Pace Institute of International Commercial Law became involved in cross-border ODR work in 2010. We played an advisory role in the creation of the ODR framework that was submitted by the US delegation to CIDIP VII (the Seventh Inter-American Specialized Conference on Private International Law) at the Organization of American States (OAS). Simultaneously, the U.S. delegation to UNCITRAL also recommended that the UNCITRAL Secretariat conduct a study on possible future work that UNCITRAL might engage in on the subject of ODR for cross-border e-commerce transactions and suggested the Secretariat consider holding a colloquium of experts on the matter.

In response to the proposal, my Institute, the UNCITRAL Secretariat, and Penn State Dickinson School of Law organized a colloquium of leading experts in the ODR field (podcasts of presentations can be found at http://www.pace.edu/school-of-law/centers-and-special-programs/institutes/institute-international-commercial-law-iicl/odr-colloquium).

A number of conclusions were derived from the colloquium. First, the number of disputes arising from low-value e-commerce transactions could annually amount to the multi-millions. Unless a consumer had credit card chargeback protection – which is not available in the majority of the world – few, if any, legal redress mechanisms are currently available. There is a wide legal gap in the online marketplace that needs to be filled. Second, it is fair to say that more than one expert urged that system designers and legislators think outside the box and not necessarily resort only to traditional ADR models in their system design and rules – the rapidly developing online marketplace and the emerging new payment structures need a correspondingly progressive ADR system (or systems). Third, it was also made clear that going forward, any set of rules would have to accommodate mobile commerce, as well as electronic commerce platforms. Lastly, given the nature of the online marketplace, it was asserted that there was no reason to distinguish between B2B and B2C transactions for the purposes of developing model ODR rules and processes for low-value transactions.

With regard to this last point, it is worth noting that at the outset of this project, it was envisioned that ODR was particularly suited for the low-value “straight-forward” online transactions, e.g., an Amazon or Ebay purchase. In this scenario, the seller has made the buyer aware of the specifications for the goods and contract terms, and the buyer has made payment, without direct interaction between buyer and seller. This is in contrast to more traditional B2B online sales in which the web presence is the first point of entry for the buyer to view seller’s goods. However, pricing, payment, quantity, delivery and other terms may be negotiated directly between buyer and seller, i.e., further direct negotiation between the parties is anticipated. Although disputes arising out of this latter scenario could be resolved via an ODR system, they should be considered outside of the purview of WG III’s current mandate as the process needed for the resolution of these disputes does not coalesce with the process for the smaller claims. In my view, these sorts of B2B transactions fall within the scope contemplated by WG II (on international arbitration for B2B disputes) and the creation of supplemental ODR guidelines for the UNCITRAL Arbitration Rules may be more appropriate than trying to make WG II’s ODR Rules fit all shapes and sizes of disputes. At a minimum, if kept to WG III, it should be reserved as the next project for the Group.

After the Colloquium, States overwhelmingly supported the creation of a Working Group and mandated the creation of an ODR framework to resolve high-volume, low-value e-commerce transactions. There are four parts of the framework to be developed: (1) procedural rules; (2) substantive rules; (3) standards for ODR providers; and an (4) enforcement protocol.

The WG is currently negotiating the procedural rules. Outside the WG, there are two models that currently exist to address disputes arising from low-value e-commerce transactions. They are the credit card chargeback and the Paypal ODR systems. The main commonalities with these two systems are: (1) they sit within the payment channel, so consumers are readily (and intuitively) aware of their availability and the systems are easily accessed; (2) the decisions are executed within the self-contained system as the payment channel can “move money”; (3) sellers that use the payment system are bound to use the dispute resolution system – so they bind sellers to the dispute resolution process, without binding the buyer; (4) parties always have recourse back to the Courts (which is virtually never used, but exists); (5) they are funded via a fee charged to the seller, which for chargebacks increases for “bad” sellers and encourages settlement to avoid a chargeback fees; and (6) the payment channels can aggregate information and track cases against sellers to detect fraudulent practices.

Despite the apparent effectiveness of these systems, the WG has not factored these models into their work or used them as a starting point to tweak away their shortcomings. Instead, the Rules are structured to provide a two-tiered binding dispute resolution process that sits entirely outside the transaction channel (i.e., not with the payment intermediary or another online intermediary). Specifically, the Rules provide for a mandatory automated negotiation phase and if no resolution is reached, a binding online arbitration process (it is assumed the majority of claims will be resolved at the negotiation phase). An arbitrator also has the discretion to facilitate a settlement between the parties before issuing a final, binding award. Moreover, the WG seems to have put the cart before the horse, establishing a procedure for claims they have not yet defined, i.e., will disputes over goods and all types of services be covered? Delivery issues? Non-conformities? It’s reasonable to think this level of definition is necessary in order to create a process that effectively handles the disputes.

How does the current proposal depart from the established systems? Well, in several profound ways: (1) the dispute resolution system will sit outside the payment channels, autonomously in cyber-world, which means (a) sellers will have to be made aware of it and voluntarily sign up and stay enrolled in the system (and pay for it?); (b) buyers will be forced to bind themselves to it at the time of the transaction and later on must recall the availability and/or trust the seller’s referral to “their” system; (c) the autonomous system will not have the power to enforce decisions, so if a seller does not voluntarily comply, buyer must go to seller’s jurisdiction and seek to have the award enforced in local court (this point alone contradicting the entire reason to form the WG); (d) the system will not be centralized within a few payment providers but decentralized amongst ODR providers, making it difficult – if not impossible – to track scheming or fraudulent sellers and buyers; and (2) consumer-buyers lose their right to seek redress in court and are essentially stripped of their right to court intervention and review regarding the substance of the matter (given limited NY Convention review) and States lose this critical oversight because of confidential hearings.

Moreover, including binding arbitration has an impact beyond the process itself. The Rules take an ADR process that is intended for complex and/or industry specific B2B commercial disputes and transposes it to apply to all simple low-value e-commerce cases. As such, it incorporates the UNCITRAL international arbitration machinery into the process. How is a trained customer service representative (a.k.a. as arbitrator under these Rules) supposed to navigate the complexities of these laws for a few dollars? Vice-versa, what are the possible impacts to landmark Rules and Conventions, such as the NY Convention and the Model Arbitration Law, by including low value e-commerce cases under its umbrella. Also, when we get to the second phase, substantive rules, how can a good faith claim be made that substantive rules be disregarded, i.e., decisions should be made on an equitable basis or on a few basic general principles, when on the procedural side, we are reliant on a complex body of law.

Indeed, proponents of this system argue that arbitration is necessary to ensure enforcement; it must be binding otherwise sellers will not participate; black-lists and trustmarks will help seller’s comply with the awards; sellers will protest the system if we do not include a binding option; and companies and individuals in the developing world don’t have sophisticated e-commerce environments or online payment systems so a more traditional ADR approach must be taken. They also claim that if the Rules establish a fair, efficient and transparent system, there is nothing wrong with binding buyers pre-dispute and taking their right away to go to Court.

I’ve been listening to these arguments for a few years now and they still don’t sit right with me. The current systems don’t have any of these elements and they work. Sellers aren’t stone-walling credit cards or Paypal which bind them to their ADR systems, while leaving buyers with non-binding options. Black-lists and trustmarks in cyber-world have been shown to have a very limited impact. E-commerce and payment systems in the developing world are transforming so quickly on mobile phones, that legislating on today’s technology is completely short-sighted. Forcing a buyer to seek enforcement in a local court under the NY Convention puts us back at square one, leaving a buyer without effective options. In fact, we must create a fair, efficient and transparent system because no other remedy exists. And if we do build that system, sellers and buyers will be drawn to use it as a preferred option – not because rights have been taken away otherwise. We are looking to accommodate three needs: buyers looking for cheaper buying options, sellers looking to expand markets and States wanting to protect their citizen’s rights – in some cases constitutionally protected rights. Insisting on a binding arbitration system makes it very difficult to accommodate these three interests and can hinder, rather than encourage, cross-border e-commerce.

It is clear that the WG is of a split opinion as to whether the Rules should include binding arbitration and allow for pre-dispute arbitration agreements. Eventually the Secretariat may be forced to make a decision on what it considers the prevailing view. This will likely lead to binding arbitration, if for no other reason than this approach has been discussed at every meeting. It would be a shame if this were the case as it would not close the legal gap we identified in the Colloquium and seems like a lost opportunity for ODR and e-commerce. Are positions locked and there is no room for change? Not necessarily. If going forward attention is shifted to understanding system design and more specific types of claims it may help to naturally re-shape the Rules to a more realistic option (e.g., uniform ODR framework for payment providers). Whether there is willingness and openness – and a perceived need by States – to change course will have to be seen.

Biography


Professor Jill I. Gross has been a director of the Investor Rights Clinic (formerly the Securities Arbitration Clinic) since 1999. Professor Gross teaches the Investor Rights Clinic and Seminar, Mediation and Arbitration, and Securities Litigation and Enforcement. She has published numerous law review articles in the area of dispute resolution and investor justice, and has been quoted in the national media on issues relating to securities arbitration. Professor Gross is a public member of the FINRA National Arbitration and Mediation Committee, and is the program co-chair of PIABA’s annual Securities Law Seminar. As Director of Legal Skills, Professor Gross oversees and provides leadership on all matters related to curricular skills training, including writing programs, advocacy programs, and all clinics, externships, and simulations. Professor Gross previously taught as an adjunct professor at Cornell Law School (Arbitration Law) and at Benjamin N. Cardozo School of Law (Legal Writing). She is an arbitrator for FINRA Dispute Resolution and the National Futures Association. Professor Gross was an attorney in the New York City firms of Kaye Scholer LLP, Morvillo Abramowitz Grand Iason & Silberberg, and Parcher Hayes & Snyder, representing clients in white collar criminal and securities enforcement proceedings, securities arbitrations, and other commercial litigation.



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Website: law.pace.edu/faculty/jill-i-gross

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